Summary. The Storytelling Method of Dream Interpretation has been found to be valid and reliable while yielding a meaningful interpretation for dreamers more than 80% of the time. A cognitive model explaining the psychophysiological system responsible for the effectiveness of the method is proposed. The model describes a dream in terms of an input-output relationship where the dream-builder system is viewed as a system whose input is given by the dream sources and whose output is given by the dream experience. The model proposes a cascade of two sub-systems that can account for basic properties of dreams such as the continuity hypothesis, the role of dreams in turning-points of a dreamer's life, the problem-solving capacity of dreams, while accounting for the effectiveness of The Storytelling Method. An application of the model with the method is also demonstrated with an example.